Educational Articles

Technology Round Up - December 3, 2013

There have been many noteworthy developments in the technology space recently. Some of these will likely have a material impact on the companies in the sector and the markets they serve.

Notable Earnings Releases

Hewlett-Packard (HPQ) has reported results for the October period. The company posted revenue of $29.1 billion, a decline of 1% from the prior-year figure. This softness was broad based, as all Hewlett-Packard’s geographic markets reported declines. The Enterprise Services and Software segments both reported a 9% decline in revenue. Printer Supplies revenue fell 4%, while both the Printing Group and Personal Systems lines experienced a slight top-line retrenchment. A notable exception was the Enterprise Products business, which posted revenue growth of 2%. Share earnings of $0.73 fell short of our estimate, but were a dramatic improvement from the loss of $3.49 a share registered in the prior-year period. Performance will probably improve going forward, and investors have cheered what looks to be improving prospects. The company expects to earn between $0.60 and $0.64 per share for the January quarter, and it is forecasting earnings per share of $2.85 to $3.05 for full-fiscal 2014.

Meanwhile, Cisco Systems (CSCO – Free Cisco Stock Report) has also reported earnings for the October period. Revenue growth of slightly less than 2% underwhelmed investors, and the shares sold off following the announcement. Sales of routers declined moderately, mainly due to product transitions. Moreover, revenue from service provider video fell around 14%. This was offset by better performance in the data center, wireless, security, and switching lines. Share earnings of $0.53 advanced 10% on a year-over-year basis, and exceeded previous guidance. Cisco benefited from lower operating expenses, due partly to the layoff of 4,000 employees announced earlier in the year. Looking forward, near-term prospects do not appear to be particularly favorable. October orders came in between $600 million and $700 million below expectations, and the company expects a 10% top-line decline for the current quarter. Service providers have been reluctant to purchase high-end routers, given that a new wave of technology is about to be introduced and widespread economic uncertainty remains. Moreover, sales in a number of emerging markets have been weak.

PlayStation 4 vs. Xbox One

Sony (SNE) and Microsoft (MSFT - Free Microsoft Stock Report) introduced their next-generation consoles in late November, just in time for the holiday season. Both Sony and Microsoft reported selling more than 1 million units in the first 24 hours of availability. Sony’s PlayStation 4 sells for just under $400 per unit. It has 500 GB of storage capacity and 8 GB of memory. Its primary controller is the DualShock4, but it also supports the PlayStation Move, PlayStation Vita, and PlayStation Camera. Like the PlayStation 3, it allows users to play Blu-ray discs, but at three times the speed. Microsoft’s Xbox One sells for just under $500 per unit. It also features 500 GB of internal storage capacity and 8 GB of memory. It supports the Xbox One controller, the Xbox One Kinect, and SmartGlass. Initial policies regarding restrictions on the sale of used games and online connectivity requirements proved unpopular with prospective customers, and were subsequently reversed by the company. The Xbox One comes with the Kinect motion-sensor controller, which may appeal to some users. The greater price tag may discourage other gamers that are not interested in using the Kinect, though.

Both of these new consoles will most certainly remain quite popular among gamers who want to upgrade to the next generation. The success of these consoles should have an impact on Sony and Microsoft. Recently, two separate surveys among American consumers have indicated that the PlayStation 4 may have the early advantage, though it remains to be seen which console will perform better for the holiday season and thereafter. Moreover, it will likely be a few years until this generation of consoles really come into their own, when game developers have figured out how to use the strengths of the new machines to produce the most compelling titles.

Amazon’s Delivery Drones

Amazon.com (AMZN) has recently unveiled early plans for Amazon Prime Air, a developmental project that someday could allow packages to be delivered by autonomous drones. The octocopter drone (it has eight blades) would use Global Positioning System (GPS) technology to deliver packages to Amazon’s customers. Ideally, delivery would occur within 30 minutes from the time the order is placed. Needless to say, such a development would revolutionize e-commerce, and no doubt attract customers, as well. However, even assuming this project is successful, it should be at least a few years before this becomes a reality. The major hurdle here isn’t the technology, but ensuring the safety of such an ambitious program. This includes the coordination of a large number of delivery drones, and minimizing the associated risks. Amazon will have to demonstrate to the Federal Aviation Administration (FAA) the safety of this program. This will take some time to accomplish. In the meantime, the announcement of this program has given Amazon free advertising for the holiday shopping season. It reflects the company’s strategy of offering its customers products at low prices with fast delivery.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.